Tax on children?
The official title of a new measure coming in from 7 January 2013 is ‘the high income child benefit charge’ (HICBC). It will apply to taxpayers with annual income of £50,000 or more, who either claim child benefit, or have a spouse or partner who does. HMRC are about to send letters to child benefit claimants to explain this new charge and who has to pay it.
Here are a few facts:
The HICBC is not a tax on child benefit: it is a charge that claws back the child benefit received by the family, pound for pound, up to 100% of the benefit received.
The HICBC is calculated as 1% of the child benefit received by the family for every £100 of income above £50,000, looking only at the income of the higher earner. Those earning £60,000 or more have 100% of the child benefit clawed back.
Although the child benefit may be paid to person A, the tax charge must be paid by the higher earner in the relationship, who may be person B.
Person B will need to know how much child benefit person A is claiming in order to declare that amount of benefit on their self-assessment tax return form.
Person A can elect not to receive the child benefit, but person B (who pays the charge) cannot force person A to make this election.
This election allows person A to retain the right to NIC credits which count towards the state pension entitlement.
This charge, announced in the March 2012 Budget, will make the tax system much more complicated – as if it needed that. We can advise you on how you will be affected.
